Global Business Week: OECD warns of serious economic risk from a second wave
The state of Financial markets & Economies, Weekly Charts, Trends & Statistics
It was an eventful last week for the financial markets as they hit some records and companies achieving other milestones. The U.S stocks rallied into the weekend with the Dow Jones jumping 190 points. In the Forex markets, the Greenback finally seems to be showing resistance to further losses as it rebounded strongly to end the week.
Here are some of the highlights for the week:
- Both benchmark U.S indices S&P 500 and Nasdaq closed at record highs.
- Bitcoin’s rally has paused for now, as it carved a temporary high around $12,400, last weekend — receding to $11,600 at the time of publishing.
- Apple becoming the first public company to cross the $2 trillion in market cap as it heads to another stock split on Aug. 31.
- Tesla continued to rip higher crossing $2,000 per share — the company is also headed for a 5:1 stock split on Aug. 28.
- With all these massive gains across the board, The shortest U.S bear market in history coming to an end.
Outside the stock market’s buoyant mood, global economies are still struggling to gain their footing. EU-UK Brexit talks have hit an impasse as there is a real danger of them breaking down completely. The rest of the Eurozone saw services growth fade in the past two weeks while manufacturing improved. Here in the U.S., unemployment continues to be a huge overhang on the economy — with weekly jobless claims rising to over 1.1 million after two successive weekly drops.
On the trade front, a six-month review of the Phase 1 trade deal agreement between the United States & China as previously planned talks were canceled by the While House for now. Sufficed to say, that Global equities performance is the only bright point in the otherwise bleak picture for the economies. Earlier OECD warned of serious economic risk (Figure 1, top chart) from the second wave of COVID-19 infections which now seem to be taking shape in various countries of the World.
The following are closing weekly numbers (Figure 2), followed by the YTD asset performance (Figure 3).
World’s most valuable Unicorns
Using CB Insights data, the infographic below (Figure 4) features the most valuable unicorns by valuation, major geographical region, industry, and total funding. ByteDance leads in valuation at $140B, making it the first hectocorn — companies valued at $100B+. TikTok, its viral video app, has been downloaded roughly 2 billion times. Altogether, ByteDance operates more than 20 apps. 3 of the top 10 unicorns by valuation are based in China.
Fintech & Healthcare spaces host the most number of unicorns — where the former has 66 VC-backed unicorns with a combined value of $248 billion and the latter hosts 46 unicorns worth $116.8 billion. Although the first quarter of this year was the worst one in history for fintech unicorns, healthcare unicorn funding continued to grow as investors looked for innovative solutions to fight the pandemic.
Identifying Your Stage on the Investor Lifecycle
A good financial plan is one that can evolve over time. As one ages, financial goals, risks & priorities change and they should be reflected in any investment portfolio one holds. The following Markets in a Minute chart (Figure 5) from New York Life Investments outlines the investor lifecycle — a three-staged theory designed to help individuals optimize their portfolios as they age.
Broadly speaking, a typical investment portfolio will transition through three broad stages over one’s lifetime, adjusting the types of assets to reflect the investor’s shifting risk profile — Accumulation, Preparation & Retirement stage. Earlier in the careers, investors are comfortable in taking more risk for capital growth with the focus shifting to income-oriented investments in the next stage, and the final stage marked with low risk & preservation of capital.
Although each individual may present unique circumstances, the underlying theme remains the same — optimizing one’s portfolio to align with the individual financial goals.
Tourism Trauma caused by COVID-19
Pandemic-related lockdowns, flight cancellations, and border closures have had an outsized impact on countries that rely on foreign travelers — with potentially large-scale effects on their economies’ national accounts. According to the IMF’s recently released 2020 External Sector Report, Costa Rica, Greece, Morocco, Portugal, and Thailand could be among the hardest hit with losses in tourism proceeds exceeding 3% of GDP.
The chart below (Figure 6) calculates direct tourism impacts on imports, exports and current account balances under a scenario that envisions gradual reopenings in September but a drop of about 70% in tourism receipts and international tourism arrivals in 2020.
Structural Shift in Manufacturing over the Years
The onset of the pandemic has spurred the supply chain disruptions in most sectors, causing the trend of globalization to change to localization. The last three decades have seen all export-related manufacturing shift to China from the western nations (Figure 7). According to BofA Global Research, however, foreign firms manufacturing out of China over the next five years is set to decrease, as countries start to depend on their local supply chains for essentials.
Tether used to buy majority of Bitcoin
Stable coin Tether (USDT) is the most popular medium to buy Bitcoin (BTC) on crypto exchanges. Over the past 12 months, the USD value of Tether sent to exchanges has equaled 48% of the USD value of bitcoin sent to exchanges (Figure 8). So there was enough Tether to buy almost half of the bitcoin for sale, the rest likely being purchased with fiat.
The ratio fell as bitcoin increased above $10,000 suggesting that fiat, rather than Tether, was driving bitcoin purchases. This changed in recent days with newly issued Tether arriving on exchanges. For more, sign up for the weekly Chainalysis Market Intel Report here.
U.S Credit Card Debt drops sharply
U.S. household debt decreased by $34 billion to $14.27 trillion in the second quarter of 2020, marking the first decline since the second quarter of 2014 (Figure 8). While many may have expected debt levels to rise amid the pandemic, the drop-off in consumer spending during the lockdown actually resulted in an unprecedented drop in credit card debt, which more than made up for a $63-billion increase in mortgage debt.
As the following chart shows, outstanding credit card debt dropped by $76 billion in the three months ended June 30, marking by far the largest decline on record. The previous record had been set in the first quarter of this year when outstanding credit card debt had declined by $34 billion due to seasonal effects exacerbated by early signs of decreased consumer spending due to COVID-19.